Country Report Romania July 2009

Outlook for 2009-10

• The government, comprising the Democratic Liberal Party (DLP) and the Social Democratic Party (SDP), has a large majority, which should enable the cabinet to pursue its agenda unimpeded by the parliamentary opposition.
• The potential for intra-government conflict is great, given likely differences between the DLP and the SDP over economic policy and judicial reform.
• The government's pursuit of fiscal retrenchment under an IMF-funded programme will bring it into opposition with the unions, and there is a risk of widespread social unrest as austerity bites and unemployment grows.
• The IMF has agreed a revised consolidated budget deficit target of 4.6% of GDP in 2009 (compared with 2% of GDP previously), based on much bleaker assumptions about economic growth and revenue intake in 2009.
• Following real GDP growth of 7.1% in 2008, the Economist Intelligence Unit forecasts an economic contraction of 4% in 2009. A rebound, to growth of 1.5%, is forecast in 2010.
• Average consumer price inflation is forecast to fall gradually, from 7.8% in 2008 to 5.1% in 2009 and 3.3% in 2010.
• After reaching an estimated 12.4% of GDP in 2008, the current-account deficit is expected to contract sharply, to about 7% of GDP in 2009.

Monthly review

• The ruling DLP and SDP, and the former ruling National Liberal party (NLP), lost ground in the European Parliament election in June compared with the share of the vote they received in the national election in November 2008.
• The main beneficiary of growing public dissatisfaction with the main parliamentary parties was the ultra-nationalist Greater Romania Party (GRP), which registered a significant increase in support.
• The government is on target to meet half-year consolidated budget deficit targets agreed with the IMF and the EU.
• The National Bank of Romania (NBR, the central bank) lowered the main policy interest rate to 9% on June 30th in response to lower inflation and the sharper than expected fall in economic activity in the first half of the year.
• Revised first-quarter real GDP data indicate that industry and agriculture are the sectors suffering the most in the recession, and there are few signs of recovery in the second quarter.
• A 67% year-on-year contraction of the merchandise trade deficit in January-April contributed to an 79% year-on-year narrowing of the current-account deficit.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336